Only So Much ECB Can Do About Crisis

by Brian Blackstone

Wall Street Journal
June 5, 2012

Cut, buy, lend. That pretty much sums up the European Central Bank's response to the euro-zone debt crisis.

Interest-rate cuts, government-bond buys and generous bank loans have been tried with varying degrees of vigor, and success, since late 2011. Now, as it meets Wednesday amid mounting concern over Spain, the question is whether the central bank will use the same tools, or if it will try new more-sweeping methods.

Those hoping for the latter may be disappointed. With Greek elections approaching—and its future in the euro at stake—as well as a critical European Union summit looming at the end of June, a "shock-and-awe" response from the ECB seems unlikely just yet. That said, a return to already-tried approaches is likely to prove a stopgap at best. An interest-rate cut from the current 1% level is a possibility and would be justified on economic grounds.

More